“Bully” Manulife to pay $250,000 punitive damages.

On December 14, 2007, the Ontario Court of Appeal upheld an order that The Manufacturers Life Insurance Company (“Manulife”) pay $250,000 in punitive damages, $150,000 in damages for breach of fiduciary duty, as well as judgment against Manulife for hundreds of thousands of dollars for improperly withheld commissions. This decision remains one of the highest punitive damages awards ever made against a Canadian life insurance company.

Background

In 1967, Reg Ward became an insurance agent affiliated with Monarch Life. With persistence and hard work Ward built up a solid reputation with the company and became one of Monarch’s top salespeople. In 1983, Ward became associated with North American Life, after it purchased Monarch.

In 1991, Ward entered into an agreement with North American Life to be paid 5% commissions on all policies he had sold from 1967 onwards. These commissions represented Ward’s retirement fund, and his right to receive them had vested.

In 1996, North American Life and Manulife merged their operations and continued operating under the Manulife name. Following the merger, Manulife presented Ward with a Producer’s Agreement on a take it or leave it basis. Manulife assured Ward that his previous agreement concerning payment of the vested premiums would continue.

A year after the merger Manulife gave Ward a 30-day notice terminating the Producer’s Agreement, for no clear reason. In the months following the termination, Manulife assigned Ward’s clients to other agents, it sent Ward a “cease and desist” letter when he began contacting his clients in an attempt to salvage his business, and it froze his commission account. Manulife also filed complaints with the Ontario Insurance Commission in an attempt to have Ward’s licence suspended. Worst of all, Manulife threatened to contact the RCMP’s fraud unit to have Ward charged, even though he had committed no crime.

Reg Ward was not a young man and Manulife’s actions took a genuine toll on his health. Instead of looking forward to his retirement, he was forced to continue working to support himself and his wife.

The Trial

Following a lengthy trial, Reg Ward was vindicated on all fronts. Manulife was ordered to pay him $267,000 representing his past earned commission income. Manulife was also ordered to provide for the payment of commissions in the future. Ward was awarded damages in the amount of $150,000 for Manulife’s breach of its fiduciary duty to him, and punitive damages in the amount of $250,000.

Manulife appealed to the Ontario Court of Appeal. In its appeal Manulife raised five main issues. With the exception of a minor cost premiums issue, the appellate court dismissed Manulife’s appeal in its entirety.

In considering the punitive damages award, both the trial judge and the Court of Appeal took particular notice of the actions of Manulife’s in-house counsel, Blair Anderson. The Court of Appeal wrote:

[46] In early 1999 Ward retained a solicitor who demanded payment of the commission account. [Blair] Anderson’s response was that a further reason for freezing the commission account was to set off amounts that might become payable to policy holders who had sued Manulife and its agents in a class action alleging negligent misrepresentation in relation to the premium offset policies. The Producer’s Agreement only provided for setoffs for “any liability due”. In the same letter Anderson stated:

We are also planning, upon receipt of several of the current outstanding settlements, to pursue a meeting with the Commercial Fraud Unit of the RCMP to determine whether it would be appropriate to have criminal charges laid against [Reg and Steve Ward] in relation to their activities in the sale of these policies.

In his analysis of punitive damages, when referring to this statement the trial judge stated “the term ‘bully’ comes to mind.” The letter was also found by the trial judge at paras. 216 and 218 to be evidence of a continuing course of conduct on the part of Manulife to methodically and deliberately destroy Ward’s reputation within the community. He held such conduct was deserving of an award of punitive damages.

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